The present article focuses on the obligation to record a licensee as an "authorized user" and the implications of the failure to do so, under Israeli law.
Challenges of Mandatory Recordal of Authorized Users
The legal requirement to record a licensee as an "authorized user" derives from the general purpose of any trademark register, which is to reflect, as precisely and accurately as possible, the commercial reality and the trademark rights existing in the relevant jurisdiction for the benefit of the public, including consumers, trademark owners, and their competitors. However, the need to apply, maintain, and cancel recordals of authorized users puts a burden on trademark owners, which can sometimes be quite significant. In some fields of trade and services, the business involves extensive licensing to many parties; for example, when the business model is based on franchising or on merchandising. The need to routinely record, or cancel the recordal, of numerous licensees involves considerable costs and cumbersome formalities. Furthermore, the need to cancel the recordal of an authorized user, in case of a lawfully terminated license, often requires the cooperation of the past licensee (unless agreed otherwise in advance), which might be abused by the past licensee and could be used to put pressure on the trademark owner and former licensor.
In addition, extensive licensingwhether in writing or de facto, explicit or impliedoften derives from the fact that many companies operate as groups and concerns, in which one company holds some or even all the intellectual property (IP) assets of the group, including trademarks, while direct use of the trademark is made by other companies in the group. Consequently, not only are there significant challenges in recording straightforward license and franchise agreements, there are also difficult decisions for a business or practitioner to make about whether a license exists and if thus a recordal is necessary. As an example, within a group of affiliated companies, it is not always clear which company makes direct use of the trademark; that is, whether the manufacturer is a licensee of the registered trademark owner, or rather a subcontractor of the registered trademark owner, which company manufactures the products and affixes the trademark for and on behalf of the trademark owner. In such cases, it is not easy to determine whether a recordal of an authorized user is at all required. Moreover, in the case of closely affiliated companies, such as a parent company and a wholly owned subsidiary, the legal obligation to record one of these companies as an authorized user of a trademark owned by the other company may seem redundant and artificial.
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